This thesis is aimed at investigating the situation of divergent inflation rates of all provinces in China by the year 2000 to 2013. In order to investigate whether inflation is divergent in China, the study establishes a modified Phillips Curve model, to verify whether the Phillips curve is applicable to China, whether the provinces’ inflation rates are displaying a similar sensitivity to changes in unemployment or the output gap as the average of China. This study uses the Panel Least Square for all provinces, and the time series is used to test for each province compared with average of China separately. The result shows that the provincial inflation rates have different sensitivity to changes in the output gap compared with the average of China. Additionally, the original Phillips curves and modified Phillips curves are applicable for provinces of China when the fixed effect at regional level.